Save More Tomorrow: The Procrastinator’s Guide To Saving Money

I should’ve written this article earlier today. Instead, my lizard brain decided to spend four hours watching football. Humans are natural procrastinators. We want to feel as good as possible all the time. That’s why we spend now and save later, eat now and diet later, binge-watch Netflix now and work-out later. It’s a vicious cycle.

The right dose of discipline and effort can help curb your procrastinating nature for a while, but our lizard brain is powerful and makes us fall back into bad habits. Savings plans get derailed, diets get cheated on, and, well, you never did go to the gym.

So what’s the solution? You can design a clever trap to fool your procrastinating lizard brain. Or better yet, use one that’s designed for you. It’s called automation, and it goes beyond simply paying yourself first.

Save More Tomorrow

One of the best ways to get employees to save for retirement is to automatically enrol them into the group savings plan instead of leaving it up to individuals to opt-in. Automatic savings plans are the most effective way to build up a nest egg. If you have to actively think about saving, odds are you won’t do it.

Putting away even a small amount every month is a great first step, but perhaps there’s more you can do to ensure a bright financial future.

Back in the mid-1990s, behavioural economists Shlomo Benartzi and Richard Thaler devised a program called Save More Tomorrow that used nudges to help people make better long-term financial decisions. The program invites employees to gradually increase their savings rate over time.

Save More Tomorrow turns our natural tendency to procrastinate into a positive outcome. While most people would cringe at the idea of saving an extra $100 today, they’re more likely to agree to save that much in January, when their raise kicks-in. The Save More Tomorrow program asks the question and then automatically commits you to that increased amount in the new year. You don’t have to think about it again.

“The average saving rates for (Save More Tomorrow) program participants increased from 3.5 percent to 13.6 percent over the course of 40 months.”

Benartzi isn’t satisfied, though. He thinks digital tools such as apps, websites, emails, and text messages can help people save even more money. But it’s not enough to just use these nudges inside of workplace sponsored programs. The new “gig economy” consists of freelancers, part-time workers, independent contractors, and the self-employed. It’s estimated that more than 40 percent of workers are no longer salaried employees.

These people will be solely responsible for their own retirement and financial well-being, and Benartzi says if we don’t provide them with easy digital tools for savings, we could be looking at a generation of workers struggling to achieve financial security in retirement.

Digital Nudges

Apple Pay and Amazon’s one-click buying are examples of digital tools that have made it easier than ever to spend money. With tools like robo-savings apps, the goal is to make saving money just as easy.

One example of a digital nudge might be in the way a question is framed. When users were randomly assigned different versions of a question about how much to save, only 7 percent opted to save $150 per month, while nearly 30 percent decided to save $5 a day. The smaller, daily amount seems more achievable even though it gets you to the same result in the end.

Another example is to provide just in time feedback to your mobile device. Apps that track your investment performance and spending habits can have a huge impact on your behaviour. Users of a U.S.-based app called Personal Capital decreased their spending by 15.7 percent. Most of that decrease came from discretionary spending, with users spending less on categories like dining out.

Results from government surveys support this behaviour. The majority of consumers with access to their financial information on mobile phones check their balances before making large purchases, and of those who check, 50 percent decide not to buy an item because of the feedback.

Improving Financial Literacy

One major issue with teaching financial literacy in school is that students can’t apply the concepts they learn until many months or years later. One study found that, like other education, financial education decays over time; even large interventions with many hours of instruction have negligible effects on behaviour 20 months or more from the time of intervention.

Benartzi says the just-in-time financial information provided by a good app can solve this timing issue, providing people with crucial information when they need it the most.

Final Thoughts

I think about my finances more than the average person but that doesn’t mean I’m not susceptible to nudges. Just the other day I was checking my mortgage balance online when I saw a note that read, “increase your payment by $50 and you will save $2,469 in interest and pay off your mortgage 10 months sooner,” followed by a link to take action. So I did it. The new payment starts January 1st.

I’m confident that future me will be able to handle the higher payments next year and my discretionary budget will naturally adjust to its new reality.

In fact, when I set up my budget for the new year I’ll look for other opportunities to save more tomorrow through the power of automation.